Glenmark Pharma seeks to dig deep for future growth

New Delhi, Dec. 21 -- The day after it unveiled a strategic blueprint for the future, Glenmark Pharmaceuticals Ltd's share fell by 0.6% although it did better than the healthcare index which was down 1.1%. The reaction was not out of place. After all, Glenmark's blueprint was for the next decade, with uncertain elements such as achieving success in its research programs.
Glenmark expects its revenues to grow by 15-20% (compounded annual growth rate or CAGR) over the next five years. The lower end of the range is lower than the 19% CAGR it achieved in the past five years. On profitability, it expects ebitda (earnings before interest, tax, depreciation and amortisation) will increase from about 20% in FY16 to 23% by FY20 and 25% by FY25. In the near term, its profitability will jump from the launch of generic Zetia (a cholesterol drug) in the US market, with a 180-day exclusivity period. It is expected to add about $200-250 million in revenues during this six-month period. Profitability will be higher as a result, but should normalise subsequently.
When asked if its profitability growth targets are conservative, Glenmark's management said it has taken into account uncertainties both in the US generic market due to competition and pricing pressures. Glenmark's success also depends on how well its strategy plays out.
What does it have lined up? It joins other leading Indian generic companies in seeking to make more complex generic drugs and increase contribution from its speciality business. It will spend significantly behind its research program for complex generics and new molecules, which are in various stages of progress. Five to ten years down the line, it wants revenues from its speciality and innovation programs to be 30% of revenues.
It will continue to in-license drugs to accelerate revenue growth and will also seek partners for its research programs. This will help diversify revenue streams and share costs respectively. Still, its R&D; spends will average at 11% of revenues in the next five years. Its net debt to ebitda levels are expected to moderate from current levels.
The risks to these estimates are that the US generic environment turns tougher with price controls or if any regulatory risks emerge. The upside can come from big wins in Glenmark's research programs but investors have little visibility on these matters. Glenmark's strategic plan is useful but a really long-term guide for investors to evaluate how the company is doing. Glenmark's share has returned 23% gains, in the past six months, compared to a flat performance by the BSE Healthcare Index.
Published by HT Syndication with permission from MINT.